W. P. Carey Inc. (WPC) featured company in The Wall Street Transcript

October 29, 2012

Trevor P. Bond, President and Chief Executive Officer of W. P. Carey Inc. (WPC), talked to The Wall Street Transcript about his company.Click here to read the complete interview.

TWST: W. P. Carey has been in business for almost 40 years now. The company has made a big change in switching to the REIT structure recently, but before we get to that, would
you describe the company’s history and business focus?

Mr. Bond: I think it’s important to note that we’re new now as a public REIT, but actually we’re not a new company. As you pointed out, we’ve been in this business for 40 years. While it’s an important change in form for us, and it was appropriate in our evolution, it doesn’t actually change who we are and what we do.

The way that I like to describe it is that Bill Carey didn’t invent the concept of sale-leasebacks — that’s a financing technique that’s been around for some time, and Bill had been doing one-off sale-leasebacks as early as the late 1950s. But early in his career, he saw the wisdom of the concept of giving retail-type investors access to this form of investment, which they otherwise wouldn’t have access to, which is single-tenant real estate.

He started the business first with limited partnerships, and then it evolved into what’s now our Corporate Property Associates series of funds. We’re now on our 16th of those funds; 14 of them have come full cycle, where the capital has been returned to the investors, obviously with a profit. So we have this 40-year track record, which is an extremely important part of who we are, part of our brand.

And I think another aspect of our history, which is important, is that we do have a very durable investment premise that’s enabled us to provide steady, rising dividend income over many cycles. It’s a cycle-tested track record. The CPA funds go back to 1979, and the premise is pretty simple. We buy a company’s most important real estate, and then we lease it back to them for a long period of time, 15 to 25 years typically. During that time, the contract includes rent increase provisions, typically those would be CPI-related, but not always. Sometimes they’re fixed rental increases. So we get the benefit of that rising income over time, and that’s where you get your cycle resistance, because no matter what’s happening in a local market at a given time, if the tenant continues to pay rent as they’re expected to, then you’ll have rising income.

But at the same time, because it’s a triple-net lease structure and the tenant pays the taxes, the insurance and the operating expenses, the investors are not exposed to cost inflation. We’ve had low inflation over the past two years, and so maybe some investors have forgotten what the impact of that can be. But over time, I think that’s been a real strength of our investments, that we don’t have exposure to the cost inflation. That helps a lot when we look at other markets as well. When we invest internationally, where you’ll have perhaps some inflation risk in a given market, not having that exposure is a good investment premise. I think that when you marry this investment premise with some other key factors — we put these in a diversified portfolio, and we use conservative leverage, so the diversity gives you the safety and ring-fences individual risk, and we typically use nonrecourse debt as well. Over time, it results in very good risk-adjusted returns for our investors.